Operating cash flow

Operating cash flow

In financial accounting, operating cash flow (OCF), cash flow provided by operations or cash flow from operating activities (CFO), refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.[1] The International Financial Reporting Standards defines operating cash flow as cash generated from operations less taxation and interest paid, investment income received and less dividends paid gives rise to operating cash flows.[2] To calculate cash generated from operations, one must calculate cash generated from customers and cash paid to suppliers. The difference between the two reflects cash generated from operations.

Cash generated from operating customers

  • revenue as reported
  • - increase (decrease) in costs of sales- Stock Variation = Purchase of goods. (2)
  • + all other expenses
  • - increase (decrease) in depreciation, provisioning, impairments, bad debts, etc.
  • - financing expenses (disclosed separately in Finance Cash Flow)

(1): operating: Variations of Assets Suppliers and Clients accounts will be disclosed in the Financial Cash Flow

(2): Cost of Sales = Stock Out for sales. It is Cash Neutral. Cost of Sales - Stock Variation = Stock out - (Stock out - Stock In)= Stock In = Purchase of goods: Cash Out

Operating Cash Flow vs. Net Income, EBIT, and EBITDA

Interest is an operating flow. Since it adjusts for liabilities, receivables, and depreciation, operating cash flow is a more accurate measure of how much cash a company has generated (or used) than traditional measures of profitability such as net income or EBIT. For example, a company with numerous fixed assets on its books (e.g. factories, machinery, etc.) would likely have decreased net income due to depreciation; however, as depreciation is a non-cash expense[3] the operating cash flow would provide a more accurate picture of the company's current cash holdings than the artificially low net income.[4]

Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability based on net working capital. The difference between EBITDA and OCF would then reflect how the entity finances its net working capital in the short term. OCF is not a measure of free cash flow and the effect of investment activities would need to be considered to arrive at the free cash flow of the entity.

See also


  1. ^ Ross, Stephen, Randolf Westerfield and Bradford Jordan Fundamentals of Corporate Finance
  2. ^ International Accounting Standards 7, Cash Flow Statements (January 2007)
  3. ^ Definition of depreciation via Wikinvest
  4. ^ Definition of OCF via Wikinvest

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Operating Cash Flow — Der Operating Cash Flow (OCF) ist eine betriebswirtschaftliche Kennzahl, die den Teil des Cash Flows widerspiegelt, der aus der gewöhnliche Geschäftstätigkeit eines Unternehmens stammt[1]. Einzelnachweise ↑ http://www.dis… …   Deutsch Wikipedia

  • Operating cash flow — Earnings before depreciation minus taxes. It measures the cash generated from operations, not counting capital spending or working capital requirements. The New York Times Financial Glossary * * *    The change in a company s net cash position… …   Financial and business terms

  • operating cash flow — earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. Bloomberg Financial Dictionary * * *    The change in a company s net cash position during a… …   Financial and business terms

  • Operating Cash Flow Margin — A measure of the money a company generates from its core operations per dollar of sales. The operating cash flow can be found on the company s cash flow statement, and the revenue can be found on the income statement. A high operating cash flow… …   Investment dictionary

  • Operating Cash Flow - OCF — The cash generated from the operations of a company, generally defined as revenues less all operating expenses, but calculated through a series of adjustments to net income. The OCF can be found on the statement of cash flows. Also known as cash… …   Investment dictionary

  • Operating Cash Flow Ratio — A measure of how well current liabilities are covered by the cash flow generated from a company s operations. Formula: The operating cash flow ratio can gauge a company s liquidity in the short term. Using cash flow as opposed to income is… …   Investment dictionary

  • Operating Cash Flow Demand - OCFD — A measure of the amount of operating cash flow needed to meet the capital costs of a company s strategic investments. This value is used to compute the cash value added of a company s strategic investments and operations. A strategic investment… …   Investment dictionary

  • Net operating cash flow — Se ha sugerido que este artículo o sección sea fusionado en Flujo de caja (discusión). Una vez que hayas realizado la fusión de artículos, pide la fusión de historiales aquí. El NOPCAF, acrónimo del inglés, Net Operating Cash Flow, y traducido al …   Wikipedia Español

  • Cash flow — For other uses, see Cash flow (disambiguation). Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · …   Wikipedia

  • Cash flow forecasting — is the modeling of a company or asset’s future financial liquidity over a specific timeframe. Cash usually refers to the company’s total bank balances, but often what is forecast is treasury position which is cash plus short term investments… …   Wikipedia